Demystifying Indian Goods and Service Tax

Tax is a Latin word and derived from the word “Taxo” means rate. Tax is a financial charge levied by the government (central / state / local body) for meeting the public expenditure like road, dams, army for safe guarding the borders etc. the dictionary meaning of tax “A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions: higher taxes will dampen consumer spending”.

       In day to day life every individual or business man / woman pays various types of taxes. These taxes are direct tax in nature like Tax Deducted at Source i.e levied when income we earn and we receive the net amount like salaries where in the employer deducts the tax and the pays / deposits the net amount. In case of business when an individual or body of persons or company earns money on supply of services, the service receiver deducts tax and pays the net amount. In direct tax, the individual pays the tax directly to the tax authorities.  Indirect taxes are taxes which are paid indirectly by the individual like when one goes to super market and buys groceries or any electronic goods Value Added Tax is charged, the tax is collected by the super market or store keeper form us and deposits the tax on behalf us to the tax authorities, this is called indirect tax.

           Currently we have Central Excise on removal manufactured goods from factory, Value Added Tax on sale of goods within in the states,  Customs & Counter Vailing duties on import of goods into India, Service Tax on services and Central Sales Tax on sales in case of interstate sales.  These are the major taxes applicable on most of the transactions, apart from these transactions we also have industry specific cess like mineral cess, clean energy, etc.

           Some of the above taxes are administered by the central government like Central Excise, Service Tax and Customs and some by State Governments like Value Added Tax, Entertainment tax, luxury tax etc. and Octori  by local by Municipality or village or town.  Central Sales Tax levied by the central government and administered by the state government. Tax Point or the tax applicability are different for different taxes, for Central Excise it is on the moment of goods, for Service Tax it is on the invoicing or completion of service whichever is earlier. Apart from these structural differences, the items are not taxed across the sates equally, under VAT we have exemption less than 100 and under central excise the list of items is around 250. Added to this complexity, the items are taxed at different rates in different states and also in some states exempted for VAT and for Excise and VAT different treatment. These differences increase the compliance cost of an organization and also allow room for the users to make mistakes there by inviting wrath of the tax administration.

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